BRUEGEL

POLICY
CONTRIBUTION
ISSUE 2015/13
JULY 2015

ADDRESSING
FRAGMENTATION IN
EU MOBILE TELECOMS
MARKETS
MARIO MARINIELLO AND FRANCESCO SALEMI

Highlights

Telephone
+32 2 227 4210
info@bruegel.org

Mobile telecommunications markets are an important part of the European Commissions strategy for the completion of the European Union Digital Single Market.
The use of mobile telecommunications particularly mobile data access is growing and becoming an increasingly important input for the economy.
The EU currently does not have a unified mobile telecommunications market. The
EU compares favourably to the United States in terms of prices and connection
speed, but lags behind in terms of coverage of high-speed 4G wireless connections.
Europes long-term goal should be to make data access easier by increasing highspeed wireless coverage while keeping prices down for users. An increase in
cross-border competition could help to achieve that goal.
The Commission has two important levers to help stimulate cross-border supply:
(a) ensuring competition in intra-country mobile markets in order to provide an
incentive for operators to expand into other jurisdictions, and (b) reducing mobile
operators costs of expansion into multiple EU countries. The further development
of policies on international roaming and radio spectrum management will be central
to this effort.

www.bruegel.org

Mario Mariniello (mario.mariniello@bruegel.org) is a Research Fellow at Bruegel.

Francesco Salemi (francesco.salemi@bruegel.org) is a Research Assistant at Bruegel.
The authors wish to thank Serafino Abate, Antonios Drossos, Stephen Gardner, J. Scott
Marcus and Guntram Wolff for helpful comments. Research assistance by Afrola Plaku
is gratefully acknowledged.

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ADDRESSING FRAGMENTATION IN EU MOBILE

TELECOMS MARKETS
MARIO MARINIELLO AND FRANCESCO SALEMI, JULY 2015
1 INTRODUCTION
The completion of the Digital Single Market (DSM)
is one of the top priorities for the European Commission under Jean-Claude Juncker. On 6 May
2015, the Commission published a strategy outlining how it intends to achieve that goal (European Commission, 2015). According to the
strategy, the completion of the DSM could contribute 415 billion per year to [the EU] economy
and create 3.8 million jobs1.

1. http://ec.europa.eu/priorities/digital-single-market/.
2. Lam and Shiu (2010), for
example, estimate that the
growth in mobile penetration rates significantly
affected total factor productivity growth in a number of
countries between 1995
and 2004. They also found
a two-way relationship
between mobile penetration
rates and real GDP growth in
these countries between
1997 and 2006.
3. Grzybowskiy and Verboven (2014) note that,
especially in recent years,
mobile broadband in EU
markets has been perceived as a potential substitute for fixed broadband.
The UK telecoms regulator
Ofcom found that there is a
growing positive gap
between mobile data revenue and fixed broadband
revenue (Ofcom, 2014).

A major plank of the strategy is addressing fragmentation in the telecoms sector: access availability, quality and prices vary significantly across
the continent, with telecoms markets defined by
national borders. Users access conditions are
largely determined by their place of residence. The
Commission's initial strategy document does not
yet offer any concrete solutions to this, but indicates areas for potential future intervention.
In this Policy Contribution we specifically look at
EU mobile telecoms markets and analyse potential concrete measures that could contribute to the
Commissions digital strategy goals of improving
end-users access conditions and addressing EU
market fragmentation through the development of
cross-border supply of services. There is no apparent structural reason why the supply of mobile
services should stop at EU member states
national borders. For the provision of mobile services, wireless infrastructure is needed. We focus
on this for a number of reasons:
The diffusion of mobile telecommunication has
been shown to be a significant factor in improving productivity2.
Mobile data consumption is growing rapidly
because of the fast take-up of smartphones
and tablets (even though a large part of this
traffic is being offloaded to Wi-Fi connections
at home or at work) (European Parliament,

2013, pp92-93); the vast majority of mobile

traffic will soon be generated by 4G connections (Cisco, 2015).
Mobile broadband, or wireless internet access,
could soon become a valid substitute for wired
broadband access for most typical internet
uses3, in particular in low population density
areas where building fixed infrastructure might
not be economically sustainable.
Mobile broadband technologies are developing
rapidly and although there is still uncertainty
about the details of the next generation (5G)
wireless standard, the allocation and assignment of dedicated spectrum bands might start
as early as 2020.
The fundamental question is how European
mobile markets can be improved for the benefit of
users. The often-heard answer is that barriers to
cross-border competition should be gradually dismantled in order to move towards a pan-European
market for mobile services.
Pan-European networks imply lower production
and possibly network deployment costs, resulting
from economies of scale. This should imply lower
prices in the short-term and more investment in
the long-term, leading to increased high-speed
mobile broadband coverage.
Avoiding the multiplication of networks would also
reduce double mark-up effects: when more than
one network is needed to provide a service, for
example in the case of international calls, there is
a natural tendency to higher prices. Each network
owner chooses how much to charge for terminating calls on its network and wants to maximise
only its own profits without considering the negative effect that such choices could impose on the
profits of other network owners. The higher the
price, the lower the demand will be for a complementary good in this case the call origination on
other networks, which are also needed to make

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the call. Cross-border networks operated by single
operators would limit that phenomenon and ultimately exert a downward pressure on tariffs.
Opening the borders would also mean increasing
competitive pressure on national markets, with
users given access to a wider choice of operators.
This would not necessarily mean that a uniform
tariff for all EU users should emerge in such a
market, nor that the Commission should impose
such a price. As long as significant structural differences between EU countries continue to exist,
requiring uniform prices could harm customers
with a lower ability to pay, ie customers from
lower-income countries4. Figure 1 shows the average mobile operator revenue per user (ARPU, a
measure commonly used as a proxy for unit price
for mobile services) and the average hourly salary
per person in 2013 for each EU country (except
Austria). The correlation between the two variables
is very high. It would be hard to imagine Bulgarian
customers paying the same mobile prices as customers from Luxembourg.

for mobile telecommunications should be to allow

differences in price and quality of service only if
they relate strictly to differences in supply (ie
costs) and demand characteristics. In the long
term, such an approach could be expected to lead
to converging tariffs across the continent, insofar
as the progressive completion of the single market
as a whole (not only the DSM) will imply an
increased convergence in the levels of purchasing power and production costs in EU countries.
To identify how the Commission's goal of a single
market for mobile services might be achieved, we
first look at EU mobile markets in comparison with
the US. We then examine how improved wireless
access to data by final users, increased fast
mobile broadband coverage and lower prices could
be stimulated by greater cross-border competition.
We then show how policies on international roaming and radio spectrum management could have
an impact on cross-border competition.
2 EU MOBILE TELECOMMUNICATIONS MARKETS

To reach its goal, the Commission should aim to

ensure that markets are competitive and exposed
to a similar level of competition across the continent. Customers from any country could be able
to choose from a set of potentially EU-wide service
providers and possibly other suppliers with a local
or regional focus (a scenario closer to that in the
US). In other words, the Commission's objective

Mobile market structure

Figure 1: Average hourly remuneration and

average revenue per user, EU countries, 2013

MNO(s)

300
LU
IE

250
CY

SE

UK

DK

NL

BE

200

ARPU ()

SI

150

FR

EU
FI

CZ
HU
HR

100

DE

ES

MT
SK
EL

IT

PT

PL
EE
BG

50

LT
LV

RO

0
0

10

15

20

25

30

35

40

45

Average hourly remuneration ()

Source: Bruegel based on Eurostat and Digital Agenda

Scoreboard. Note: Austria is missing because the ARPU value
is not available. The correlation between the two variables is
0.81 (with 1 indicating a perfect positive correlation).

There are about 40 mobile network operators

(MNOs) in the EU. Many operate in just one or two
countries. A restricted group of big international
Table 1: Presence of mobile network operators
in EU countries
Vodafone
Deutsche Telekom
Orange, TeliaSonera
Hutchison
Tele2
Telekom Austria, Telenor
Telefnica
KPN, Belgacom, BITE, Elisa, OTE
(40% DT), PPF
Bouygues, Bulgaria Telecom,
CYTA, DNA, Eircom, Everything
Everywhere (50% DT, 50%
Orange), Go, Iliad, Luxembourg
Online (LOL), Melita, MTN, NOS
Comunicaes (formerly
Optimus), Play, Polkomtel,
Portugal Telecom, POST
Luxembourg, RCS-RDS, SFR,
TDC, Telecom Italia, Teledema,
Telekom Slovenije, Tumobil,
VimpelCom, Wind Hellas

Number of countries
12
8
7
6
5
4
3
2

Source: Bruegel based on Rewheels Digital Fuel Monitor.

4. Differences in prices
would also be expected in
more competitive markets,
because of differences in
the cost of providing mobile
services in different
countries.
5. Even though none has a
network that covers the
entire land area or population of the US, each covers
more than 99 percent of the
US population. See FCC
(2014), p7.
6. FCC (2014), Table II.C.2,
p16.

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companies (Vodafone, Deutsche Telecom, TeliaSonera, Orange, Hutchison) have a larger European footprint, but nowhere near complete EU
coverage (Table 1). By comparison, in the US there
are four nationwide MNOs5 (AT&T, Verizon, Sprint
and T-Mobile) which accounted for 95.3 percent of
US mobile revenues in 20136. The US also has one
7. While the financial performance of European telecoms operators should not
be a primary policy concern
in itself, it might be relevant
to the extent that worse
financial performance
might result in poorer services to users, because, for
instance, of insufficient
investment in the deployment, maintenance or
improvement of network
infrastructure or reduced
investment in new technologies that would allow
better utilisation of the
available resources (eg
spectrum, base stations).
8. Bruegel calculation
based on Eurostat and the
US Department of
Commerce.
9. The European Commission recently opened an indepth investigation of a
proposed merger between
TeliaSonera and Telenor in
Denmark presented as a
joint venture between the
Danish operations of the
two companies
(http://europa.eu/rapid/pres
s-release_IP-154749_en.htm). Other deals
have been either formally
announced, pending formal
clearance from antitrust
authorities, eg the acquisition of O2 (Telefnica) by
Hutchison in UK
(http://www.techweekeurope.co.uk/mobility/4g/three
-o2-hutchison-whampoa167859), or are rumoured,
eg the merger between
Hutchison and Wind in Italy
(http://telecoms.com/42132
1/hutchison-and-vimpelcom-in-talks-to-merge-3italia-and-wind/) that would
further reduce the number of
operators in these markets.

multi-regional operator (US Cellular) and several

regional and local providers.
Some companies in Europe (eg Tele2, TeliaSonera,
Telenor) tend to concentrate on specific regions,
such as Nordic and eastern European countries.
Table 2 shows companies market shares across

Table 2: MNO market shares (% of SIM) in EU countries, Q1 2014

AT

BE

FR

DE

IE

IT

LU

NL

PT

30.3%

39%

ES

UK

Pre* Post** Pre* Post**

Vodafone
Telefonica
Deutsche Telekom
Everything Everywhere***
Orange
Hutchison
KPN
Belgacom
POST Luxembourg
Luxembourg Online (LOL)
Telecom Italia
VimpelCom
Telekom Austria
SFR
Bouygues
Iliad
TeliaSonera
Eircom
Portugal Telecom
NOS Comunicaes

BG

29.5% 29.5% 40.9% 40.9% 26.4%

17% 37.8% 29.2%
32.6% 32.6%

33.8%

28.8% 25.2%
42.3% 29.5%

26.1%
33.6%

27.7% 41.2%

10.6%

22.9%

9.3% 38.5%
28.2%
44.1%

22.9%

11%

11.7%

20.8%

43.6%
37%
51.7%
0.7%
37.5%
25.1%

43.3%
32.3%
17.1%
9.4%
6%
20.6% 20.6%
45.4%
15.5%

HR

CZ

DK

EE

FI

GR

HU

LV

LT

PL

RO

SK

SI

SE

Deutsche Telekom
46.6% 40.3%
44%
28.4%
33.9%
TeliaSonera
22.9% 45.8% 34.3%
41.6% 34.8%
46.2%
Telenor
34.7%
16.6%
32.2%
16.7%
Tele2
13.5%
27.6%
40.3% 42.8%
26.1%
Vodafone
23.7%
30% 23.8%
31.4%
Telekom Austria
43.5% 40%
30.3%
Orange
27.4% 39.7% 43.2%
Elisa
26.6% 40.4%
Hutchison
9.7%
10.9%
OTE (40% DT)
49.2%
23.8%
PPF
36%
22.9%
BITE
18.1% 20.4%
DNA
25.3%
TDC
50.8%
Play
18.7%
Polkomtel
25.6%
Wind Hellas
20.7%
Telekom Slovenije
58.2%
Tumobil
11.5%
RCS-RDS
5.1%
Teledema
2.1%
Bulgaria Telecom
21.8%
Source: Bruegel based on Rewheels Digital Fuel Monitor. Note: Colours indicate market share rank in each country: red = largest market
share, orange = second largest, blue = third largest; green = fourth largest. * Pre and ** Post: data for Germany and Ireland shows the situation both before and after the Hutchison 3G UK/Telefnica Ireland and Telefnica Deutschland/E-Plus mergers. Data for each country might
not add up to 100% because of rounding. Malta and Cyprus are not included. *** 50% DT, 50% Orange.

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Europe. Because of different regulatory frameworks, however, even companies that operate
multiple networks in neighbouring countries operate the network in each country on a stand-alone
basis, so that it is fair to speak about EU national
markets rather than a unified EU mobile market in
which users can buy mobile access from other
operators active on the EU territory. The fragmentation of the EU market and the resulting smaller
scale of operation has been identified as one of
the factors behind the worse financial results of
European telecoms companies compared to their
US, Japanese and Korean counterparts7. It should
be noted however, that the absence of a homogeneous regulatory regime is not the only explanation for differences in outcomes, such as user
access prices, in Europe. For example, supply and
demand conditions vary significantly across
Europe, much more than across the US, and differences in prices might be justified even if a
homogeneous regulatory framework was sud-

denly adopted. In average real income per capita

terms (in purchasing power standard), the ratio
between the richest and the poorest US states is
1.73. In Europe, the ratio is 5.71 (or 2.91 excluding
Luxembourg)8.
In the last two decades, Europe and the US went
through broadly similar market restructuring
processes, with a series of merger and acquisition
deals that significantly increased the level of concentration in the market after the entries of new
operators in the mid-1990s and the beginning of
2000s. Figure 2 shows the major merger events
in EU mobile markets from 2003 to 20159. Figure
3 shows major merger events in the US mobile
industry from 2004 to 201410. Mobile telecommunication markets in EU member states and in
the US are now similarly concentrated11.

Figure 2: Merger events in the EU, 2003-15

GERMANY:
NETHERLANDS:
KPN acquires Telfort

AUSTRIA:
Mobilkom Austria
(Telekom Austria)
acquires 3G Mobile

2003

2004

2005

Acquisition of E-Plus (KPN)

by O2 (Telefonica)
cleared with remedies

NETHERLANDS:
T-Mobile
acquires Orange

AUSTRIA:

UK:

T-Mobile
acquisition of
Tele.ring
cleared with
remedies

T-Mobile UK and Orange UK

merge (cleareance with remedies)
as Everything Everywhere (EE)

2006

2007

2008

2009

2010

2011

DENMARK:

DENMARK:

AUSTRIA:

European
Commission
opens in-depth
investigation of
TeliaSonera DK/
Telenor DK merger

H3G Austrias
acquisition of
Orange Austria
cleared with remedies

2012

2013

2014

2015

2016

GREECE:

TeliaSonera DK
acquires Orange DK

Vodafone abandons its attempt to merge

with Wind Hellas because of concerns
regulators would not approve it

GREECE:
TGP IV and Apax, which jointly control
TIM Hellas, acquire Q-Telecommunications

IRELAND:
Acquisition of O2 (Telefonica Ireland)
by H3G cleared with remedies

Source: Bruegel.

Figure 3: Merger events in the US, 2004-14

Cingular Wireless acquires
AT&T Wireless and
adopts the AT&T brand

Alltel acquires
Midwest Wireless

AT&T acquires
Dobson
Communications

Alltel acquires
Western Wireless

2004

2005

Sprint and Nextel merge

forming Sprint Nextel

2006

Acquisition of
Rural Cellular by
Verizon cleared with
divestitures to AT&T

2007

2008

T-Mobile acquires
SunCom Wireless

Acquisition of Centennial
by AT&T cleared with
divestitures to Verizon

2009

2010

Source: Bruegel.

AT&T abandons bid

for T-Mobile

2011

Acquisition of Alltel by Verizon

cleared with divestitures to
AT&T and Atlantic Tele-Network

Sprint Nextel and Clearwire Corporation form a JV

combining their WiMax businesses into a
new company, named Clearwire

Softbank (Japan) acquires

Sprint Nextel and takes over Clearwire
to create Sprint

AT&T announces
its intention to
acquire T-Mobile

DOJ formally
asks to block AT&T
takeover of T-Mobile

2012

T-mobile
merges
with
MetroPCS

2013

FCC recommends
non-approval of
AT&T/T-Mobile deal

AT&T acquires
Leap Wireless

2014

2015

Sprint gives up
takeover of
T-mobile in face
of regulatory
resistance

AT&T acquires
Atlantic Tele-Network
wireless business

10. In the US, after entries

by operators made possible
by the spectrum awards
determined in the first
series of large spectrum
auctions (Broadband PCS)
during the mid 1990s, and a
series of acquisition that
gave rise to operators with
nationwide footprints, two
mergers in 2004 reduced
the number of nationwide
operators from six to four,
and successive mergers
eliminated competition
from multi-regional operators, eg MetroPCS acquired
by T-Mobile in 2013, Leap
Wireless acquired by AT&T
in 2014. This left US Cellular
as the only multi-regional
provider of mobile services
that has not yet been
acquired by a nationwide
provider.
11. According to the standard thresholds based on
the Herfindahl-Hirschman
Index (HHI), which is commonly used to measure
market concentration. In
the EU the average HHI
(weighted by population)
was 3216 in Q1 2014, indicating a high level of concentration (Bruegel based
on Rewheels Digital Fuel
Monitor); in the US the average HHI weighted across
Economic Areas was 3027
in 2013 (about a 40 percent
increase from an HHI of
2151 in 2003). Source for
US figures: FCC (2014),
Chart II.C.1, p17; for 2003
figures, FCC (2011), Table 9,
p47.

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Mobile end-users prices

esting to note that price differences cannot be

explained by higher download speeds.

The Organisation for Economic Cooperation and

Development publishes every two years data on
prices for mobile services. The most recent data
was collected between August and September
2012 (OECD, 2013). Several EU countries had
lower prices than the US. This was the case in particular in those countries where there exists at
least one challenger that does not compete in
other EU markets with the very same operators
active in that country (eg Finland, Estonia and
Poland) or where Hutchinson was present (eg Austria, Denmark, Sweden and the UK). Before it
embarked on a series of acquisitions, Hutchinson
was a challenger in all countries where it operated, being consistently the smallest operator
with market shares well below 20 percent, and
often just around 10 percent. The difference in
prices between US and Europe is particularly
acute when considering services that include
data. Figure 4 shows download speed and prices
of wireless broadband in OECD countries. It is inter-

Network investment
Generally speaking, the telecommunications
industry is characterised by large fixed costs
related to the acquisition of spectrum licenses and
the roll-out of networks with sufficient geographic
coverage and capacity (bandwidth), and by small
variable costs of providing actual services. In
absolute and per capita terms, the US invests
more than EU countries in telecommunications
network infrastructure. EU operators have in the
past indicated that their apparent investment
underperformance is a consequence of smaller
revenue streams compared to US operators. Lower
EU mobile telecoms revenues are likely to be
partly explained by the greater maturity of EU markets: between 2005 and 2013, mobile cellular
subscriptions per 100 people (the penetration
rate) increased from 96 to 125 percent in Europe
and from 68 to 96 percent in the US (Bruegel

Speed Mbit/s

$33.20

$35

80.0

80.0

Figure 4: OECD wireless broadband basket, Sept 2012, Tablet 250MB (top) and Tablet 2GB (bottom)
Total $ PPP
$20.60
42.0

$16.49

$15.05

$14.99
21.6

$13.16

$12.02

$13.27

7.2

Chile 2.0
Japan
$33.20
42.0
$34.45

United States
$33.00

Israel
$32.73

$31.96

Spain

2.8

7.2

Canada

7.2
$27.75

45
40
35
30

21.6

21.6

$25.48

$23.99

$23.90

$30.97

Portugal 2.0

New Zealand

Czech Rep.

Korea

7.2

6.0

Australia

Germany
42.0

42.2
$22.64

$22.29

$20.60

$18.65

10

25
20

7.2

7.2

10

3.6

7.2

7.2

7.2
2.0

7.2

15

7.2
2.8

3.6

2.0

30

14.4

13.5

$18.58

$17.75

10.8

$15.51
21.6
$17.70

$15.05

$14.79

$12.94
14.4
$13.05

$12.63
7.2

$12.55
7.2

$12.29

7.2

$12.06

$12.02
6.0

4.5

$11.99

$10.47
16.0
$11.12
21.0
$11.83

7.2

$10.28

40

Spain

Japan

United States

Mexico

Belgium

Canada

Turkey

Switzerland

New Zealand

Germany

Greece

France

Chile

Slovakia

OECD av.

Netherlands

Czech Rep.

Slovenia

Israel

Norway

Italy

Portugal

Hungary

Ireland

Korea

Iceland

Australia

UK

Poland

Austria

$0

Denmark

$5

Luxembourg

$10

Finland 0.5 $7.11

$9.04
Estonia 1.0
$9.94
Sweden
5.0

$ PPP

$15

50

Mbps

$20

Greece

7.2

Slovenia

Switzerland

3.6

Total $ PPP

$30
$25

$12.29
40.3
$12.72
21.6
$13.05

$11.75
42.0
$11.86
42.2
$11.95

$11.68

$11.62

$11.02
16.1

$10.95

Speed Mbit/s

$35

60

20

Netherlands

3.6

2.2

Mexico

Belgium

OECD av.

$10.67

$10.91

14.4

$9.63
7.2

Italy

$8.82
7.2

Turkey

Luxembourg

Slovakia

Norway

3.6

$8.52

$8.51

$8.15
14.4
$8.28

$7.84

40.3

$40

Poland

Ireland

$6.51

$6.84
5.0

7.2

France

Iceland

$6.31
7.2

2.0
42.0

Austria

$5.99
3.6

UK

Hungary

$5.67

$5.65

5.0

Sweden

$5.04
0.5

Denmark

Estonia

$0

$4.81

$5

1.0

$10

Finland

$ PPP

$15

70

Mbps

42.0

$25
$20

90
80

$30

Source: Bruegel based on OECD. The panels show (i) the price of the least costly options in OECD countries for baskets of
wireless broadband which include total charges for 250MB (top) and 2GB (bottom) of data for tablet use per month in USD PPP
(left axis) and (ii) the broadband speed of the contract in megabits per second (right axis). The correlations between prices
and download speeds in the two figures are about 0.09 for the 250MB basket and 0.17 for the 2GB basket, suggesting little
relationship between the two variables.

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based on World Bank). The increase in revenues in
the US is mainly due to the increase in penetration
rates, similar to what European operators experienced during the mid-2000s (Figures 5 and 6).

An analysis of OECD countries for the latest available year shows a high correlation between
mobile revenues and investment in per capita
terms (Figure 7). However, the correlation does not
say much about the existence or direction of a
causal relationship. Both per capita investment
and revenue are highly correlated with countries
per capita GDP. Furthermore, different labour costs
needed to build base stations or other network
infrastructure could significantly affect the monetary amounts invested in different countries,
even for similar costs of equipment. Also, the use
of different accounting practices means that different companies might compute the same financial items (eg revenues and capital investment)
in substantially different ways, implying that
simple comparisons of these figures could be misleading.

Figure 5: Mobile revenue in the EU and US,

billions, 2005-12
180

160

EU

140

US
120

100

80
2005

2006

2007

2008

2009

2010

2011

2012

Source: European Commission.

Figure 6: Monthly wireless ARPU in the EU and

US, , 2005-12

In general terms, increased revenues can always

be a result of lower competitive pressure. Competition stimulates investment by pushing companies to invest and innovate as they seek other
potential revenue sources (for an overview, see
Motta, 2004; for an application to the telecoms
sector, see Nardotto et al, 2015). Competition
might however reduce the incentive to invest if it
implies a reduction of expected profits after an
investment is made12. The clearest example is
with innovation: companies would not invest in
innovative projects without a patent system to
shield their inventions when their new products

60

US

50

40

EU

2012 Q1

2012 Q3

2011 Q3

2011 Q1

2010 Q3

2010 Q1

2009 Q3

2009 Q1

2008 Q1

2008 Q3

2007 Q3

2006 Q3

2007 Q1

2006 Q1

2005 Q3

20

2005 Q1

30

Source: European Commission.

2500

350

Public telecommunications investment per capita (left scale)

300

2000

GDP per capita (left scale)

250

Telecommunications revenue per capita (right scale)

1500

200
150

1000

100
500
50
0

Telecommunications revenue per capita ($)

Turkey

Poland

Mexico

Hungary

Czech Rep.

Austria

Slovenia

Estonia

Slovakia

Portugal

Germany

Israel

Greece

UK

Spain

Italy

Iceland

Korea

Ireland

Chile

Norway

OECD

Japan

Finland

Sweden

France

Belgium

Denmark

New Zealand

United States

Canada

Netherlands

Luxembourg

Australia

0
Switzerland

Public telecommunication investment per capita ($)

and GDP per capita ($ thousands)

Figure 7: Public telecommunication investment per capita, telecommunications revenue per capita
and GDP per capita in OECD countries in 2011

Source: Bruegel based on OECD. Note: public telecommunication investment per capita (left axis, in US$), telecommunication
revenue per capita (right axis, in US$) and GDP per capita (left axis, in thousand US$). The correlation between revenue per
capita and investment per capita is 0.84, while GDP per capita has correlation of about 0.73 with both revenue per capita and
investment per capita (with 1 indicating a perfect positive correlation).

12. This is what is referred

in the literature as nonmonotonic (inverted-U)
relationship between
competition and
investment/innovation
(Aghion et al, 2005).

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can be imitated so quickly and cheaply that they
are not able to earn a sufficient return on their
investment13. Hence, the contemporaneous correlation between revenue and investment conveys little information about the link between the
two variables, if not accompanied with information
on the profitability of future new investment by
operators.

The coverage of Long Term Evolution (LTE) networks a standardised broadband wireless communication technology usually advertised as 4G
is greater in the US than in the EU. In 2014, US coverage reached 98.5 percent of the population,
compared to 79.41 percent of households in the
EU (Figure 8). One explanation for such a difference is the delay by many European countries in
assigning the radio spectrum necessary to provide 4G services over LTE technology. As Figure 9
shows, the US started to assign spectrum much
earlier than EU countries. The first US auction took
place in 2006 while the first auction in Europe took
place in 2008 in Sweden. For those EU countries
that were faster in auctioning off spectrum, a similar, or greater, level of coverage to the US can be
observed, while the only two countries with coverage still below 50 percent, Cyprus and Bulgaria,
have yet to assign spectrum in the 800 MHz band.
Also, some US operators (eg Verizon) had a greater
incentive to quickly adopt LTE because their networks, unlike those of their European counterparts, were running on technologies that provided
a significantly lower level of service. This also
forced the other operators in the US to quickly
respond and deploy LTE networks.

Mobile broadband connection (LTE/4G)

coverage and speed
It should be noted that investment in itself might
not be that relevant if that does not translate into
infrastructure that directly benefits users. A measure of total expenditure on investment does not
convey complete information on the benefits delivered. For example, territories with different structural features are likely to require different levels of
investment. Less densely populated areas might
require higher investment. This does not mean that
users from those areas are better off than users
from areas where investment levels are lower
because the population is geographically more
concentrated. For that reason, it is very important to
measure the outcome of an investment rather than
the investment expenditure in itself.

In terms of connection quality, download speed is

generally faster in Europe than in the US. Figure
10 shows that in several EU countries average
download speeds and peak download speeds are
faster than speeds in the US, and that the percentage of consumers with a connection that is
faster than 4 megabits per second (Mbps) in
many European countries is higher than in the US.

The core benefit of new infrastructure is increased

coverage, speed and reliability of communication.
In that context, the ability of users to access fast
mobile telecommunications everywhere in Europe
now and in the future should be the main concern
for EU policymakers, rather than the amount of
investment expenditure.

58%

56%
Romania

60%

52%

60%

Latvia

Austria

67%

65%

Poland

Croatia

68%

67%
Malta

Greece

Belgium

73%

70%

Hungary

76%

Italy

75%

Estonia

70%

36%

50%
40%
30%

Bulgaria

Slovakia

0%

UK

10%

Cyprus 0%

20%

Netherlands

13. However, note that this

is not the only effect a
patent system might have
on incentives to innovate.
Especially in cases in which
the boundaries of the
patents are fuzzy, incumbents can use patents they
hold to block potential rivals
or to extract rents from
innovative firms, reducing
their incentives to invest in
innovative projects.

Spain

79%

77%

EU

80%

France

80%

79%

Lithuania

87%
Ireland

90%

84%

92%

90%
Slovenia

Finland

Czech Rep.

92%

92%

Germany

96%

94%
Portugal

US

Luxembourg

99%

99%

Denmark

100%

99%

100%

Sweden

Figure 8: LTE coverage in 2014

Source: Bruegel. Note: LTE coverage for European countries is taken from the Digital Agenda Scoreboard and shows the percentage
of households living in areas covered by LTE in 2014. The US data shows the percentage of the population living in areas covered
by LTE in January 2014, and is from the FCC (2014), Table III.A.2, p31.

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3 IMPROVING EU MOBILE MARKETS
The previous section showed that the area in
which the EU has the most catching up to do is
mobile coverage of 4G connections. This is true
even taking into account that Europe is catching

up on LTE thanks to the progressive deployment

of networks following spectrum assignments that
were late relative to the US. This finding suggests
that the European Commission should implement
a strategy that helps to increase the coverage and
penetration of high-speed mobile broadband while

Figure 9: Major recent US spectrum auctions and major EU 4G spectrum auctions

United States:
Auction-66
Advanced Wireless
Services (AWS-1)

2006

Spain:
Multiband auction

Netherlands:
2.6 GHz auction

2007

2008

Sweden:
1800 MHz
auction
France:
800 MHz
auction

Austria:
2.6 GHz auction
Denmark:
900/1800 MHz auction

Sweden:
2.6 GHz auction

2009

United States:
Auction-73
700 MHz band

2010

Ireland:
Multiband auction

2011

2012

Belgium:
800 MHz auction
UK:
4G auction

2013

France:
Sweden: 2.6 GHz auction
Italy:
Multiband
800 MHz
Denmark:
auction
Finland:
auction
800 MHz
2.6 GHz auction
Belgium: auction
2.6 GHz auction
Denmark:
Portugal:
Netherlands:
2.5 GHz auction
Multiband auction
Multiband
Germany:
Spain:
auction
Multiband auction
Re-auction

2014

2015

2016

United States: Auction-97

Advanced Wireless
Services (AWS-3)

Austria:
Multiband
auction
Finland:
800 MHz
auction

Source: Bruegel.

Figure 10: Average speed, Average peak speed and percentage of connections above 4 Mbps, 2014

Croatia

2.4

3.2

Romania

3.9

3.5

Hungary

4.2

Slovenia

Lithuania

4.2

Germany

4.5

Belgium

4.5

Poland

4.6

Australia

4.8

Nlands

4.8

Italy

Spain

5.3

5.0

Czech Rep.

6.7

France

5.9

6.8

Japan

US

7.3

Sweden

Austria

7.9

Denmark

5.9

8.3

Slovakia

Ireland

9.0

UK

4.9

Average mobile connection speed in megabits per second (Mbps)

16.0

South Korea

18
16
14
12
10
8
6
4
2
0

15.6

10.1

US

Croatia

16.1

16.6

18.4

21.1

Nlands

20

18.6

24.1

22.2

Ireland

Romania

31.7

Germany

Lithuania

33.9

Sweden

66.3%

Austria

28.1

36.6

Italy

40

28.5

37.6

37.4

Denmark
69.5%

France

40.1

France
71.3%

UK

40.3

Slovakia
74.8%

Japan

45.9

South Korea
77.8%

Slovakia

46.1

UK
78.3%

60

28.6

Average peak connection speed in megabits per second (Mbps)

South Korea

80

74.7

100

105.3

120

Slovenia

Belgium

Hungary

Czech Rep.

Spain

Poland

Austria

0.9%

Croatia

12.5%

19.8%

Germany

Romania

20.0%

Hungary

28.3%

US

42.3%

42.5%

Nlands

33.0%

44.0%

Belgium

Australia

44.5%

Slovenia

Lithuania

45.5%

49.3%

Poland

Spain

52.3%

49.3%

Ireland

59.3%

% of mobile connections above 4 megabits per second (Mbps)

Italy

Czech Rep.

Japan
90.0%

Sweden

Denmark

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

91.8%

Australia

Source: Akamai. Note: Yearly averages were computed using quarterly data published by Akamai in its State of the Internet
quarterly reports (see https://www.stateoftheinternet.com). When data in some quarters for some countries was missing
(data for Romania was available only for Q1 and Q2; data for Croatia and South Korea was not available in Q4), the average for
those countries was computed using the data in the available quarters. Similar rankings, with several European countries
outperforming the US, can be obtained using other speed measurements (eg Ookla/NetIndex and OpenSignal).

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guaranteeing access at affordable prices, particularly in view of the adoption in the long-term of
new technologies such as 5G, on which the delays
experienced with 4G should not be repeated.
A particular emphasis should be placed on data
access, rather than voice and text. The recent
trend in mobile telecoms has been the increasing
importance of data traffic: while voice traffic was
basically flat from Q1 2008 to Q4 2014, data traffic increased 54 percent year on year and now
greatly exceeds voice traffic (Akamai, 2015)
(even though a large part of this traffic is offloaded
to Wi-Fi connections at home or at work; see European Parliament, 2013, pp92-93). Data is
expected to represent an even a larger share of
traffic in the future, especially as voice and text
messages are themselves going to be data packets running over shared links. This is already the
case with services like WhatsApp, an alternative
to SMS, and Voice over IP (VoIP) services such as
Skype, which provide an imperfect alternative to
traditional telephone call services.

14. http://www.consilium.
europa.eu/en/press/pressreleases/2015/07/08-roam
ing-charges/.
15. At the time of writing,
the provisions have still to
be formally adopted. The
current text leaves open
questions about how the
regulation will effectively be
implemented.

risk that significant domestic rents will be lost:

expanding supply across borders means imposing a threat to the rents of other operators in other
national markets, potentially leading to retaliation.
The bigger the domestic profits, the more an operator has to lose from a cross-border service supply
war between EU-wide operators.
Following from this, we consider two policies that
could have a positive effect on cross-border competition by increasing the relative profitability of a
service provided on an EU-wide basis, compared
to a service provided to domestic markets only:
(1) international roaming and (2) radio spectrum
management.
3.1 International roaming

A significant increase in cross-border competition

would help Europe to pursue the objectives of
greater coverage and affordable access: the
expansion of cross-border networks and services
would reduce investment costs and increase profitability while preserving the incentive to supply
fast and reliable mobile services at affordable
prices, for the reasons discussed in the introductory section.

To a great extent the debate about the convergence on a single European tariff has overlapped
with the debate around international roaming
charges. In July 2015, the European Parliament
and Council agreed in principle on a draft regulation that would eliminate roaming charges within
the EU14. The new rules would reduce roaming surcharges on national tariffs to 0.05 per minute for
voice calls, 0.02 per SMS, and 0.05 per MB of
data downloaded from April 2016. From June
2017, surcharges would be eliminated. Fair use
limits would be implemented to prevent exploitation of arbitrage possibilities through permanent
roaming (ie customers using SIM cards from lowprice countries for domestic use).

To stimulate cross-border competition the Commission, the European Parliament and the Council of the EU should use their regulatory powers to
make it relatively more attractive to operate crossborder networks instead of focusing on domestic
markets. Aghion et al (2005) explains the theory
that we apply to this context: companies are
attracted by the prospect of higher profits. Lower
costs of entry into cross-border markets and
increased competitive pressure in domestic markets should create an incentive to escape domestic competition and seek profits across borders.
Conversely, increased domestic profits because
of a reduction of competitive pressure might
render new investment relatively less attractive.
This is particularly true if new investment to
expand network reach across borders involves a

Under the regulation, prices would still be different in different countries, but the same price
would have to be charged whether customers connect to their providers home network or a network
in another country15. By comparison, within the
framework currently in force, international roaming services tend to be expensive, especially compared to similar domestic services, and the price
difference is not primarily due to differences in the
underlying costs. There are three main drivers that
make international roaming more expensive than
domestic mobile access. First, customers are on
average different (occasional roamers might have
higher purchasing power than the average domestic user and their need to use mobile communication services might differ when travelling, for
example). Second, roaming requires access to

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multiple networks owned by different operators
resulting in double mark-up effects (ie the
increase in price due to lack of coordination
between suppliers of two complementary goods,
in this case access to separate networks) and, in
the case of international roaming, inefficient bargaining processes16. Third and most importantly,
international roaming services are expensive
because they are normally sold in bundles with
domestic services. Customers, who predominantly use domestic services, tend to choose an
operator on the basis of its domestic offer hence
operators have little incentive to compete and
reduce their tariffs in the international roaming
market. Furthermore, at least at current prices,
price reductions do not seem on average to stimulate demand and generate higher usage of roaming services for voice and text (Marcus et al,
2013).
For this reason, the European Commission has
previously introduced price caps at the wholesale
and retail level and measures aimed at increasing
transparency and avoiding bill shocks. The stated
ultimate goal of the Commission is a roam like at
home (RLAH) scenario, in which prices of mobile
services do not change just because [consumers] have crossed an invisible internal border
that is supposed to have disappeared (Kroes,
2011). This in practice means equalising roaming
and domestic charges in order to allow consumers
to replicate their typical domestic consumption
patterns while travelling in other EU countries.
RLAH charges could leave operators facing potentially drastic business challenges. For example, an
operator from a low-income country might have a
domestic retail price that is below the wholesale
price the operator would need to pay to get access
to a host network in a high-income country, leaving the operators with negative margins on roaming services. The operator could then find it
unsustainable to offer roaming services in the
EU17. Moreover, establishing a direct link between
the price charged for domestic use and the price
charged to international roamers could introduce
distortions in domestic markets, which could lead
to price increases18.
A better solution would be for users of international roaming services to face conditions similar

to those for customers living in the country they

are visiting sometimes referred to as roam like
a local (RLAL, see Marcus et al, 2013). This would
avoid arbitrage effects without the need for a fair
use limitation clause, while potentially significantly reducing roaming prices. RLAL conditions
can be achieved through the design of a regulatory framework so that competition in the roaming
market is stimulated (while not preventing companies from charging different prices in different
member states, if the economic conditions so
require).
The EU Roaming III regulation19 introduced a number
of structural measures, in force since July 2014,
with this aim: MNOs were required to unbundle
roaming services from their domestic offerings and
give the option to alternative roaming providers to
offer these services to their customers.
The implementation of these decoupling measures has however been unsuccessful. Very few
alternative operators have so far entered the
market and it is unlikely that others will enter in
the near future. This might be because of the lack
of commitment on the part of the Commission to
enforce the measures. Even before the entry into
force of the decoupling measures, the Commission proposed other regulatory measures in the
context of the Telecom Single Market package20,
overlapping with Roaming III. In particular, MNOs
were offered the possibility to escape the
unbundling requirement by entering into panEuropean alliances with other network operators
and making RLAH offers to their own customers.
Even though it was unlikely that any MNO would
have entered such alliances, the fact that they
could use them to escape the structural decoupling measure was enough to destabilise alternative roaming operators business plans by making
their future profitability uncertain.
The new regulation's elimination of roaming surcharges suggests that the EU institutions have
little intention of credibly pursuing the decoupling
solution. However, the RLAH provisions do not
address the structural problems that are behind
high roaming prices and might have unintended
consequences for domestic prices and MNO competitiveness in home and other EU member state
markets (BEREC, 2014). The Commission should

16. Since roaming arrangements are usually reciprocal and operators try to
have a balanced flow of traffic between themselves,
operators do not choose
their roaming partners only
on the basis of the wholesale price offered, since in
this framework roaming is
not only a cost but also a
source of revenue, and
larger operators might be
preferred as partners even
though another small one
was offering a better wholesale price (Shortall, 2010).
17. In order to avoid this
problem, the draft regulation allows operators to
apply for an authorisation to
add a surcharge to the
extent necessary to recover
costs.
18. This can happen when
operators are prevented
from price discriminating
when supplying a service to
two group of customers
with significant differences
in the structure of their
demand. For a discussion
on the welfare effects of
price discrimination, see
Papandropoulos (2007).
19. http://eurlex.europa.eu/LexUriServ/L
exUriServ.do?uri=OJ:L:201
2:172:0010:0035:EN:PDF.
20. http://ec.europa.eu/
information_society/newsroom/cf/dae/document.cfm
?doc_id=2734.

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therefore commit to seriously enforce decoupling
measures, especially in case the RLAH caps result
in serious market distortions.
If successfully implemented, structural measures
aimed at stimulating competition in the roaming
market would imply a reduction of operators revenues from hosting roamers on domestic networks. International roaming revenue accounts for
5-12 percent of EU MNO revenues with margins
often higher than 60 percent (Wall Street Journal,
2014). The effective implementation of structural
measures would therefore not only reduce costs
for travellers. It would also expose domestic networks to increased competition, reducing their
domestic revenues. Moreover, opening roaming
markets to competition would provide MNOs with
a concrete incentive to become more competitive
internationally, since the measures would create
the opportunity for profitable entry into other
countries markets. Effective implementation of
structural measures to open up international
roaming markets could stimulate operators to
expand their service across borders.
3.2 Radio spectrum management

21. This risk is also present

for bidders who are willing
to buy lots only in one
country if they are allowed
to buy multiple lots and
package bidding (ie the
possibility to submit single
bids for packages of lots) is
not allowed, but is in
general mitigated by the
possibility to switch to
substitute lots if one of the
lots they were bidding for
became too expensive and
by the possibility to
withdraw (usually with a
penalty or some other
mechanism that ensures
bids represent
commitments from
participants) their bid.

Radio spectrum (hereafter spectrum) is a scarce

resource that is essential for MNOs to provide wireless communication services. The public management of spectrum can be divided into two
phases: allocation and assignment. Allocation
refers to decisions over the uses of given bands
of spectrum (eg for wireless communications, television or radio broadcasting). Allocation in the EU
is done by member states within a framework of
international coordination and harmonisation,
designed to counter cross-border interference.
Harmonised supra-national allocation of spectrum
also brings other benefits, such as enabling wireless device manufacturers to produce the same
device for use in many countries with associated
economies of scale, and enabling users to use the
same device in other countries. Assignment refers
to the award of rights to use a portion of a specific
band of spectrum. In the EU, the right to use spectrum for commercial purposes is currently
assigned on a national basis by member states,
most commonly through auctions.
Fragmentation in the assignment of spectrum hin-

ders the creation of operators with a larger European footprint for several reasons. Auctions in different countries are run at different times. When
bidding in early auctions, bidders willing to operate in multiple countries face aggregation risks
(the so-called exposure problem)21. Bidders that
want to operate in multiple countries are likely to
calculate their bids for individual lots (ie the rights
to use a certain range of frequencies in a given
geographic area to provide wireless communication services) on the basis of the value that the
whole bundle of licenses they want to obtain will
have if ultimately acquired. The bundle value is
likely to be higher than the sum of the single
licenses. For instance, an operator might find it
more profitable because of economies of scale to
hold licenses for both France and Spain compared
to the average profits that two operators would
make if each held one of the licenses. Bidders
seeking licenses in multiple countries face the risk
of paying too much in early auctions, if they fail to
secure other licenses in later auctions whose synergies would have justified the higher price.
Fragmentation in assignment procedures also
reduces the ability of bidders to switch to substitute lots in other countries if lots in one country
become too expensive. Instead each assignment
procedure is a separate exercise with its own participation costs, resulting in less flexibility to
switch between lots compared to single EU-wide
auctions. Furthermore, an operator would only be
able to substitute expensive lots in one country
with those in countries where auctions have yet
to take place and might regret choices made in
early auctions if guesses on the prices in later auctions turn out to be wrong.
Separate assignment procedures therefore
require bidders that desire to obtain licenses in
more than one country to work on the basis of
guesswork about the outcomes of future auctions,
which tends to make bidding strategies in
sequences of auctions more complex and might
push some bidders to bid more conservatively.
To reduce costs for operators and incentivise the
deployment of networks with a larger European
footprint, there should be a move towards EU-level
assignment of spectrum, with a suitable transition
period to take into account the variable features

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of each countrys market. For example, countries
might differ in terms of their uses of spectrum
bands, demand for spectrum22 or license periods.
With that constraint in mind, the harmonisation
process should proceed as quickly as possible, so
that the Commission and member states are
ready for the allocation of frequencies to be used
by future electronic communications technologies, such as 5G23.
Ideally, the EU should implement a system similar
to that in the US, where the Federal Communications Commission (FCC) assigns licenses in different geographical areas through a single
auction24. This would reduce aggregation risks for
bidders willing to purchase spectrum in multiple
EU countries by reducing the amount of guesswork needed for their bidding strategies. Since
operators would have to participate only in one
auction offering the possibility to bid for licenses
in the EU or possibly the European Economic Area,
participation costs would likely be significantly
reduced. Expenditure in terms of public resources
would also likely be lower than the cumulative
cost of separate auctions in each member state.

a bundle of lots) are allowed. An option would be to

allocate revenues on the basis of the expected
profitability of licenses25. In practice, member
states would need to delegate the actual sale of
the licenses to the Commission, working alongside national regulators, but would still retain control over the use of spectrum, such as the
conditions attached to the license.
Centralised pan-European auctions have so far
been resisted by member states concerned about
sovereignty issues linked to the loss of control
over spectrum and potential revenue losses. In
the system we have outlined, member states
would retain control over license conditions, while
the Commission would just act as a delegate for
the sale of spectrum, meaning that loss of control
over market structure downstream and sovereignty considerations relating to the use of spectrum should not represent an issue. The main risk
would be the possibility of stalemates because of
lack of agreement between member states on
timing, the details of auction design, harmonisation of license conditions or the mechanism for
splitting package bids.

The revenues obtained from the lots in each

member state should either be transferred to the
respective member state or be subtracted from
the sums they have to transfer to the Commission.

As for revenues, it is important to stress that an

efficient and competitive telecoms market rather
than revenues should be the main objective of
spectrum auctions. An allotment of spectrum
rights that enables an efficient and competitive
wireless telecoms market is likely to generate
benefits for consumers that are much greater than
revenues accruing to public finances. Hazlett et al
(2012) found that a conservative estimate of the
annual consumer surplus ($174 billion)
generated by mobile services in the US in 2009
substantially exceeds all auction revenues
collected by the FCC from 1994 to 2009 ($53
billion)26. Considering that design choices aimed
at increasing revenues are not costless and might
have negative impacts on welfare in the
downstream market (eg reducing the number of
licenses to assign), it seems natural that revenues
(as a non-distortionary/lump-sum form of public
funding) should be an objective only insofar as
that objective is in line with efficient and
competitive telecoms markets.

One complex issue would be the split of revenues

between countries when package bids (ie bids for

In any case, generally speaking, if efficiently

designed, a centralised auction should not leave

From a practical perspective, the Commission

should involve national regulatory authorities in
the design of the auction, in order to take into
account the characteristics of individual national
markets and to exploit national regulators' experience with auctions. Lots should be still defined
nationally to avoid any sovereignty concern and
because markets will remain regulated on a
national basis for the foreseeable future. This
reform should be coupled with a more harmonised
regulatory framework across EU countries that
would allow MNOs expanding across Europe to
operate the networks in the different countries as
a single one. The auction format should be decided
on a case-by-case basis to adapt it to the details of
of the economic scenario and to benefit from
future innovations in auction design.

22. For instance, in some

countries there was no
demand for spectrum in the
3.4-3.8 GHz band. See
http://ec.europa.eu/transpa
rency/regdoc/rep/1/2014/E
N/1-2014-536-EN-F1-1.pdf.
23. While it is not yet clear
what precisely 5G mobile
technologies would be, they
are presumed to be technologies offering larger
throughput and better spectral efficiency and scalability. It is likely that in order to
do this, different technologies and spectrum at very
high frequencies
(microwaves) should be
used. These technologies
are supposed, according to
those participating in their
development, to hit markets
between 2020 and 2025.
See 5GPP (2014) and GSMA
Intelligence (2014).
24. The FCC determines the
lots to be sold in these
auctions in what is called
the band plan, in which the
portion of spectrum to be
sold through the auction is
divided in specific
frequency ranges (blocks)
and the US territory is
divided according to some
geographic partition for
each block.
25. For instance, methods
based on a proportion of the
bidding units assigned to
each lot or the information
revealed by the bids submitted during the auction (if
detailed enough) could be
used. However, further
study on mechanisms for
splitting revenues is surely
needed if Europe decides to
move in the direction of a
centralised auction with
package bidding.
26. Furthermore, also the
estimated annual profits of
mobile operators in 2009
($151.7 billion) were much
higher than the cumulative
revenues.

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27. In terms of individual

revenues, while it is possible that some of the revenues might decrease,
arbitrage between lots in
different countries would
tend to generate more competitive prices (more reflective of the true value of
spectrum). Centralised auctions would represent a sort
of insurance for countries
that for some reason could
otherwise be late in assigning their spectrum, for
instance because of some
problem freeing frequencies from previous users
(see Klemperer 2004,
Chapter 5, pp164-166 for
reasons why countries auctioning later might see their
revenues reduced).
28. Among the reasons why
auctions are preferred to
comparative hearings (also
called beauty contests), in
addition to being more
transparent methods, is
that the regulator managing
the spectrum might not
have the information necessary to identify who would
be the best users for the
spectrum on sale. The auction allows the spectrum
management agency to let
the operators reveal
through their bids which
among them is best suited
to use a certain block of
spectrum. However, since
the lots sold in these auctions are rights to use an
essential resource to operate in a market, spectrum
aggregation limits should
be used in order to be sure
that bids do not contain the
value for an incumbent of a
less competitive or more
concentrated market, or
any other incumbency
advantage. If properly
implemented, spectrum
aggregation limits would
also ensure that revenue
and efficiency of the mobile
markets are not conflicting
with each other.

member states worse off in terms of auction revenue. This would mostly depend on whether the
total revenue from a centralised auction is at least
equivalent to the cumulative revenues yielded by
national-level auctions.
It is impossible to know whether this would be the
case: the number of variables that affect auction
revenues and the complexity of players' bidding
behaviour make any estimate very speculative
(see Milgrom, 2004, or Salant, 2014, on spectrum
auction design). However, there are a number of
reasons to think that a centralised EU auction
would not reduce aggregate revenue, if properly
designed27.
A hypothetical EU auctioneer would have an interest in maximising the participation of operators in
the auctions for the licenses in each country in
order to maximise aggregate revenue and achieve
a more efficient assignment. National auctioneers,
however, would look only at their national revenues and assignments without considering, for
example, that imposing a higher reserve price that
discourages some bidders from purchasing spectrum in their country could also reduce the willingness of these same bidders to participate in
auctions in other countries with potentially complementary licenses. This suggests that an EU
auctioneer might be able to achieve higher total
revenues and a more efficient assignment.
Furthermore, the reduced aggregation risk and the
reduced amount of guesswork for bidders would
reduce bidding uncertainty. That reduced cost (or
expected cost) and uncertainty could be reflected
in more confident bids, increasing the likelihood
of obtaining larger revenues.
Ultimately, however, if revenues were the main
objective of these auctions and they should not
be, as discussed above these are still going to
be minor details. The elements that are likely to
have the greatest influence on auction revenues
are design features meant to attract bidders and
to discourage collusive and predatory behaviour
or other strategic manipulation, ensuring effective
and robust competition in the auction and an
effective 'revelation mechanism' through which
information on bidders characteristics is disclosed28.

Of course, any potential benefit of coordinated

spectrum assignment would be undermined if
there is no mechanism to preserve or increase
competition in the mobile market, for instance by
preventing incumbents from hoarding spectrum
in order to undermine rivals. Spectrum is both an
instrument in the hands of the Commission to
reduce costs for operators seeking to expand their
European footprints and a tool to introduce or
maintain, when needed, competition in national
markets. Spectrum aggregation limits, such as setasides and spectrum caps, have often been used
to maintain or introduce competition in the
market, avoiding concentration of spectrum in the
hands of few operators. When implemented correctly, these measures helped to foster competitive mobile markets29.
Furthermore, if the Commission believes that fast
deployment of high-speed mobile networks is fundamental, it could try to induce member states to
include more stringent roll-out conditions in the
spectrum licenses assigned through the centralised auction. This however would translate into
reduced revenues, since MNOs would internalise
these costs in their bids. More importantly, lessstringent conditions would enable a more costefficient roll-out.
4 CONCLUSIONS
Further integration towards a single mobile telecoms market in the EU is certainly desirable. However, integration is not an end in itself; rather, it is
important to clarify the goals that integration is
meant to achieve. For example, unless income
levels converge in the long term, the emergence
of mobile tariff plans so that users are charged the
same price everywhere in Europe is neither obvious nor necessarily desirable.
Action from the European Commission to improve
the functioning of European mobile markets is
welcome. The priorities should be increasing coverage of high-speed mobile connections, and
measures to support the creation of pan-European networks networks operated by companies with a wider European footprint. Wider
European networks tend to be more efficient: they
promote cross-border competition and reduce
deployment and operational costs, ultimately

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stimulating investment while keeping access
prices low. It is particularly important to ease
access to mobile data traffic.
The Commission should start in areas where it is
easier to appreciate the benefit of intervention:
international roaming and spectrum management.
By intervening efficiently with clear policy measures in these areas, the Commission could obtain
two outcomes: (a) stimulation of competition
within national mobile markets; (b) reduction in
the cost of cross-country expansion of supply. A
compression of profits in domestic markets would
increase the incentive to look for profits in international markets, possibly through securing
bigger scale and a potentially more efficient production cost structure. A compression of costs for
international operations would make such a strategy even more profitable.
On roaming, the Commission should not abandon
the idea of seriously pushing structural measures
to increase competition in the international roaming market and to move towards a roam like a
local scenario. For spectrum, centralised auctions
implemented in a way resembling US auctions
would make it easier for operators to expand their
footprints, and the use of spectrum aggregation
limits would ensure that such a shift does not
result in less competitive mobile markets.
An important caveat is that international roaming
and spectrum management are only two out of a
number of policy areas in which the European

Commission could intervene. Policies in other

areas might have equally relevant effects, though
if inappropriately designed, those policies might
undermine the effectiveness of the measures discussed in this paper30. Potential areas for intervention include: cross-country regulatory
harmonisation, not necessarily limited to the
design and the enforcement of telecoms regulation, but also areas such as consumer protection
and other policies to reduce the costs of crossborder services delivered through mobile networks; increased coherence of the taxation/VAT
framework; and the introduction of measures to
support demand, such as measures to increase
the security of mobile online transactions. These
areas are all listed in the Commission's DSM strategy and measures are expected in the future.
The Commission should also resist any pressure
to relax merger control and facilitate domestic
consolidation, as this would be likely to have negative short and long-term effects on consumers
and on the development of a DSM. If mergers that
reduce domestic competition in one or more
member states pass through the merger regulation net without proper remedies, the benefits that
society enjoys from mobile communications and
the speed of the development of the industry
might be reduced, and operators would find in
domestic markets a profitable alternative to crossborder expansion. In that sense, the Commission
should take care of properly enforcing merger
rules so that it does not undermine the effects of
its pro-DSM policies.

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